What happens to your foreign property when you die?
Before August 2015, if you owned a second property that was located within the EU, what happened to that property when you died usually depended upon the rules that applied in the country where that property was located.
This often meant having to prepare a foreign Will that dealt exclusively with your foreign property, and accepting that in certain countries their national laws governed what would happen to your foreign property when you die irrespective of what you put in your Will (referred to as ‘forced heirship rules’, which apply in countries such as France).
However, from August 2015, new EU regulations have come into force that have the potential to drastically change this position (the ‘Regulations’).
Who does this affect?
The Regulations will affect anybody that owns a property or land in any of the following countries:
Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Estonia, Finland, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.
For the purposes of this article I refer to a property or land owned in one of these countries as ‘foreign property’.
What has changed?
The main change brought about by the Regulations is the ability to prepare a Will in the country in which you live, and to elect in that Will what happens to your foreign property when you die.
This overrules what would previously have been set out in the particular laws of the country in which your foreign property is located.
- If you are a UK resident, a carefully drafted UK Will can now set out what happens to your apartment in the Cote d'Azur in France and thereby overrule the French forced heirship rules.
- The Regulations also mean that a French resident will now be able to prepare a carefully drafted French Will to set out what happens to his farmhouse in Treviso in Italy.
What if I prepared a Will before the Regulations came into force?
The Regulations apply retrospectively to Wills prepared before August 2015.
This means that if you prepared a Will before August 2015, there is the possibility that the Regulations will direct your foreign property to beneficiaries that you did not intend to benefit.
Are there any other implications?
As with most rule changes, there are potential tax implications.
If planned for in advance, the Regulations have the potential to be a tax saving opportunity, particularly if you now choose to gift your foreign property to tax exempt beneficiaries.
However, there is also the possibility that an increased tax liability may be triggered when you die if you fail to take the Regulations into account when planning for the future.
The Regulations now also make it possible to nominate who you would like to administer your foreign property when you die, whereas previously this decision may have been made for you by the law of the country in which your foreign property is located.
How will this apply in practice?
The short answer is we do not know for certain.
Whilst it is relatively straight forward to say technically what the Regulations are intended to do, how the Regulations will be applied in practice remains to be seen.
It is easy to dismiss the impact the Regulations may have because we cannot say exactly how they will be implemented.
However, no matter how implausible it may seem, at a time when EU politicians are keen to show unity across the EU it seems very likely that the Regulations are here to stay.
Do I speak to my professional advisers in the country where I live or the country in which my foreign property is located?
Whilst cost is obviously a consideration to keep in mind, the Regulations have made it increasingly important to ensure that both sets of professional advisers communicate with each other.
At the very least I would suggest ensuring you have an up-to-date Will in place in the country where you live, and then forwarding a copy to your professional adviser in the country where your foreign property is located, as they are likely to be involved in actually selling or transferring your foreign property when you die.
I own a foreign property, what do you suggest I do?
Until we see how the Regulations are applied in practice, then:
- If you already have a Will or Wills in place, arrange to review the documents to check that the wording complies with the requirements of the Regulations.
- If you do not already have a Will in place, prepare one in the country where you live that chooses what law you wish to apply to your worldwide estate and what you would like to happen to your foreign property when you die; and
- Ensure that your professional advisers speak to each other and agree that your current arrangements enable your wishes to be carried out when you die.
At Stamp Jackson & Procter LLP, we have a long history of advising clients on the implications of buying property abroad, both during their lifetime and on death.
Through our membership of the Eurojuris International network, we have also built close working relationships with foreign advisers that we trust and that we would be happy to refer our clients to for advice regarding their foreign property.
If you would like to discuss your existing arrangements, or are thinking of purchasing a property abroad, please contact David Stokes in our Wealth Management Team on +(44) 1482 316773 or email David at email@example.com